ESMA Will Restrict Stock Trading Within EU After Brexit

ESMA has released a public statement that clarifies EU's share trading obligation following the end of the UK’s transition from the EU on December 31, 2020.

October 27, 2020 | AtoZ Markets – The European Securities and Markets Authority (ESMA) announced on Monday, October 26, that banks and asset managers based in the bloc should execute most of their share trades within the European Union after full Brexit from January.

Brexit will fragment share trading in Europe

ESMA is taking this step set to restrict cross-border markets. At the moment, large chunks of cross-border share trading are done on platforms in London. However, Britain's unrestricted access to the bloc ends on December 31, 2020.

The EU's markets watchdog set out a revised Share Trading Obligation (STO)that mandates where banks and other users of stock markets must trade EU-listed shares from January if Brussels restricts London's access in share trading.

However, the guidelines will allow trading of the EU-listed shares on platforms in London if they are traded in sterling.
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The European Union is eager to build up its own capital market to stop dependence on London, and ESMA said trading in EU currency will minimize the currency risk for EU investors.

According to ESMA, fewer than 50 EU-listed shares are traded in sterling in London. This, however, accounts for less than 1% of total EU trading.

London-based pan-European platforms Cboe, the London Stock Exchange's Turquoise, and Aquis Exchange trade shares listed on EU exchanges.

"This revised guidance aims at addressing the specific situation of the small number of EU issuers whose shares are mainly traded on UK trading venues in pounds," ESMA said.

FCA plays for time on EU share trading in London

ESMA said it had done the "maximum possible" to avoid a clash with Britain over where shares must be traded from January. Meanwhile, the UK has yet to set out its own rules on trading of EU-listed shares, saying the best solution would be for Brussels to extend full access.

"We will set out our approach if it is clear that there will be a no-deal exit, including our expectations of how firms can comply with applicable requirements," UK's Financial Conduct Authority (FCA) said in a statement.

Bankers hope that if Britain and the EU agree on a trade deal ahead of January, that might encourage Brussels to offer stock and derivatives trading access too.

Cboe, Turquoise, and Aquis have opened hubs in the EU that are ready to offer euro-denominated trading in EU-listed shares to avoid disruption to clients.

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